Rash of deals saves Gazelle venture-capital fund

Back in 1999, investors in Gazelle TechVentures expected a sprint to spectacular profits. Instead, they got a marathon slog.

According to Gazelle Chairman and largest investor Scott Jones, it was like training for a race on a sunny day, then running
it through a blizzard.

Now with the finish line finally in sight, Gazelle has outpaced most of its peers in the venture-capital industry–a performance
its backers call a victory.

"I think it's a huge success story, especially in the context of the [Internet] bubble," Jones said. "For
similar vintage funds, we're in the top 10 percent. Add that this is a first-time fund and achieving these results is

The fund finally hit pay dirt in 2007 thanks to the sale of three portfolio companies and the initial public offering of
a fourth. As a result, Gazelle's annualized investment returns now are 8.75 percent. That's meager by traditional
venture-capital standards. Speculators usually expect blockbuster gains for their high-risk investments in Internet and medical-device

But most U.S. venture-capital funds raised around the same time as Gazelle's lost money. Gazelle shareholders are now
pleasantly surprised to be making money on investments they'd long ago given up on.

Formed during the heady days of the technology boom, Gazelle easily raised $60 million to speculate on high-tech startups.
Expectations were high. It was one of Indianapolis' first venture-capital funds devoted to new tech firms. Its original
directors included city heavyweights like Mayor Stephen Goldsmith and former Eli Lilly and Co. CEO Randall Tobias.

Gazelle got off to a fast start, investing in six startups almost immediately. But its prospects soon soured. As the Internet
bubble burst in 2000, it became clear that, like most venture capitalists, Gazelle had vastly overpaid for companies destined
for the dustbin.

"In this business, the lemons ripen faster than the pearls," said Gazelle Managing Director Don Aquilano.

Aquilano took charge of Gazelle in late 2000 after its first managing director departed to run one of its startups, New York-based
electronic brokerage UNX. Aquilano's first job was triage. Today, original Gazelle portfolio companies like locally based
PointGlobal, which aimed to bring manufacturing materials management online, have long been shuttered.

In the face of vastly reduced expectations, Gazelle sold or wrote off its stakes in most others, such as RealMed Corp., a
locally based Internet portal for health care claims processing; locally based eSkye, an online system for alcohol distribution;
or Chicago-based NetGov, Goldsmith's attempt to computerize local government functions.

The next few years were a grind. To protect its remaining capital, Gazelle made few investments. But those later deals now
are paying off.

"[The Gazelle Fund is] significantly in the black," Aquilano said. "We hope it will end up more significantly
in the black. At the end of the day, it played out closer to what we predicted than not."

Gazelle officials won't disclose specifics of the fund's financials beyond saying its returns have topped the 8.75-percent
benchmark. Those gains were recent. In 2007, Gazelle enjoyed a series of "exit events" from four companies that
turned its fortunes around.

First, in January, Bloomington-based on-demand book publisher AuthorHouse was acquired by Palo Alto., Calif.-based Bertram
Capital. Terms weren't disclosed. Then in August, locally based eTapestry, which makes software for not-for-profit management,
was acquired by Charleston, S.C.-based Blackbaud Inc. for $24.8 million.

In November, Gazelle saw its two biggest gains. The first came on Nov. 15, when Chicago-based Rubicon Inc. staged a $93.8
million initial public offering. Using a technology it acquired from Russian scientists, Rubicon makes crystal LEDs used in
semiconductors and other advanced electronics. When Rubicon got off to a rocky start, Aquilano stepped in and became its chairman.

"They stuck with the company. Now they get the benefit," said Rubicon CEO Raja Parvez. "They've earned
it and they deserve it."

On Nov. 29, Gazelle saw an even bigger payday when Warrendale Pa.-based Renal Solutions was acquired for $190 million by
Germany-based Fresenius Medical Care AG & Co. Renal Solutions' home dialysis equipment technology was originally developed
at Purdue University.

"That's how venture capital works. You put multiple bets on the table and you see which ones win," Jones said.
"You hope you have some that keep their head above water and one or two that make your fund. That's true for even
the biggest funds."

John S. Taylor, who leads research for the Arlington, Va.-based National Venture Capital Association, said most funds that
began when Gazelle did lost money.

"They don't have to be very far in the black to be top quartile," he said of Gazelle's performance.

Jay Love, CEO of Greenfield-based eTapestry, was among the first to receive a Gazelle investment. He said Gazelle was patient
and willing to help eTapestry even when other venture capitalists were panicking.

"We never would have survived on either coast," he said.

It's unclear whether there will be a second Gazelle fund, Jones said. In 2004, Gazelle began sharing the local office
of Cincinnati-based Blue Chip Venture Co. Aquilano is now a director there, and plans to continue running Blue Chip's
Indiana office. But with Gazelle's recent gains, Jones is entertaining the idea of a second fund.

Either way, Gazelle will leave a local legacy. As other venture-capital firms increasingly have entered the Indiana market
in recent years, they learned from Gazelle's example. They can make money in the Midwest, as long as they're willing
to run more than a 50-yard dash.

"I think [Gazelle] gave the tech companies in Indiana an alternative. Before that, the only game in town was basically
CID [Capital]," Love said. "This was a new and exciting group, and I think their legacy was, they took a few chances.
It gave a lot of people a taste of [venture capital] and an education."

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